Recruiting operating partners that have a firm approach, yet are careful not to trample portfolio companies' senior staff, is the first step in maximising portfolio company performance, said delegates at PEI’s debut Operating Partners Forum last week.
“It’s a combination of velvet glove and iron fist,” said one GP of the ideal operating partner. “Firms that hire you expect you to drive performance, but you have to balance that with developing a relationship.”
An operating partner has to have credibility and a proven track record to gain approval from portfolio companies. “It’s establishing that insider credibility instead of saying ‘I’m from headquarters and I was sent to help you,’” said the GP.
The message that you’re both in the trenches cannot be emphasised enough. Energy, enthusiasm and passion are crucial traits that successful operating partners possess. “I interview two or three CEOs a month and two-thirds of them are intrigued by [our company’s] model, but they just don’t want to work that hard,” said another GP.
Most CEOs realise very early that “we are in this life raft together”, said the operating partner.
And if the relationship is rocky, and performance suffers, it’s bad news all around. “If you don’t succeed, I’m going to have to replace you and have to live in Kansas or Des Moines and I really don’t want to do that,” said one GP describing his ‘worst nightmare’.
Value creation is becoming an increasingly crucial part of the business – one that LPs are paying closer attention to.
“Operating partners need to be integrated into the firm; we want to make sure there’s prior work experience; we want to understand how they’re putting skill sets together; and we want to know what exactly will they be doing.”
There are several components to the operational process, but one operating partner summed up his goal: “The bottom line is, we have to find a way for the CEOs not to hate us.”